Don’t mess with misrepresentation

March/April 2017 edition

Two cases serve as a timely reminder for agents to always be accurate when making representations to potential purchasers.

By Peter Moran
Case 1

In a case heard by the Queensland Supreme Court(1), the purchaser alleged they had entered into a transaction to purchase a four-floor penthouse at the top of a high-rise mixed development complex solely as a result of the misrepresentations made by the selling agent about the value of comparative properties. Evidence of the alleged misrepresentations was limited to the purchaser’s recollection of a phone call with the selling agent. Both parties were driving at the time of the phone call, so there was no written record of the conversation.

The lack of a paper trail to substantiate a clear link between the alleged representations by the selling agent and the purchaser’s decision to enter into the contract meant the court could not make a finding of misrepresentation against the selling agent. However, if the purchaser had been able to produce a paper trail, there may have been a greater likelihood of such a finding.

The court also considered it “commercially illogical” and “inherently improbable” that the purchaser, who was an experienced businessman, did not obtain external valuation advice but rather relied (so he said) only on the selling agent’s representations.

Case 2
In comparison, in a case before the NSW Court of Appeal(2), it was found that the selling agent was liable for misleading and deceptive conduct and the purchaser was entitled to rescind a contract to buy a service station and convenience store.

An inaccurate section 149(2) planning certificate, which failed to disclose the existence of a road widening proposal that constituted an ‘adverse affectation’, was annexed to the sales contract. There was also a failure to disclose in requisitions that the vendors were involved in litigation commenced by a long-term tenant. Additionally, false information was provided in a sales brochure prepared by the selling agent, which said the business was a “solid investment … a great opportunity for long term security and income”.

The brochure was not a contractual document and not solely relied upon to justify the rescission. However the court did uphold the right to rescind on the basis of the answer “no” to the requisition which asked: “Is the vendor aware of any contemplated or current legal proceedings which might or will affect the property?”

Key takeaways

These two cases provide some key takeaways for agents regarding misrepresentation:

  • Keep paper trails. Always keep a paper trail as proof of discussions. Use emails or texts to confirm.
  • Consider commercial acumen. Always consider the commercial acumen of the parties you are dealing with. Assess whether they may be characterised as ‘an experienced businessperson’, ‘commercially savvy’ or ‘commercially unsophisticated’. This could have a significant impact on how the court interprets the circumstances of the transaction.
  • Check brochures. Don’t compile or distribute marketing brochures without careful checking for accuracy. Agents may be found liable for misleading brochures that they have prepared and distributed.
  • Answer requisitions correctly. Beware of the effect of incorrect answers to requisitions made after entry into the contract, especially if the answers are not consistent with brochure material or a selling agent's pre-contract representations. Court decisions do serve as a clear warning that incorrect answers to requisitions can give the purchaser a right to rescind.

1. Juniper Property Holdings No 15 P/L v Caltabiano (No 2) [2016] QSC 5
2. CH Real Estate Pty Ltd v Jainran Pty Ltd; Boyana Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37